ECCO

Home Capital Group. HCG.to

There must be something I dont understand about those hedges. So the stock market goes up, FFH make money on their stock but lose that money because hedges lost value. So we are even. In 2 years, the stock market goes down as the stocks FFH own, but they make money on their hedges. We are even again. How do they expect to make money with that strategy? What is the trick I dont understand?

DE and BP

What about turnarounds and distressed opportunities? Lot of upside there. I dont like turnaround and distressed opportunities, much prefer a stock with a high ROE increasing dividend every year. Gio, send us more détails and pictures of that opportunitie, it will be easier for us to help you evaluate this stock. ;)

Today, I have short some 2015 AIG 55$ put and with that money I have bought 2015 AIG 45$ call. I did the same with BAC, 2015 15$ put and bought 2015 12$ call.

In Canada, there is Omni-Lite Industries Canada (OML, 0.85$) with a market cap of 10.3M$ and a book value of 17.7M$. I like the story. Last few quarters results has been average but things seems to get better. I have a small position in this stock.

What is the problem? 14 years ago, Dow Jones index was at 11000 and now at 15000. Is it such a huge increased on 14 years?

Is it a proof that Buffett is reading the board? ;)

I second that too.

Too much money coming in?

If you flip a coin, you will be right 50% of the time. The guy was wrong on Buffett, he might be right this time?

Put a sell order at $0.01 and ask (pay) a friend to buy them.

As to whether it's worth more than 1.5BV if a 'Kaboom' moment is coming, Mr. Gundlach's fund can be invested in without any premium to book value whatsoever. The market is having trouble valuing FFH at a high premium to book value because the market itself is the one setting the value of the underlying portfolio investments -- it would be truly bizarre for it to say that JNJ is worth more in FFH's portfolio than outside of it. Thus it's down to the operating income and growth assumptions of the insurance operations for the market to use as it's input for setting a PB multiple on the stock. ERICOPOLY, I think the market is extremely allergic to those “lumpy results” Mr. Watsa is used to referring to. FFH has not meaningfully increased BV per share for some time now. That’s why, in my humble opinion, the market is completely mispricing FFH today. Because lumpy results in a secular bear for stocks are the only sustainable results possible. My best guess is the market sooner or later will recognize that Mr. Watsa & Company are right, and that will be the moment when BV per share starts to rise again very quickly. Until then the market might not have patience, but FFH shareholders must have it. giofranchi Yes, BV will no doubt rise quickly when their investments rise quickly. But that isn't in itself in any way warranting a high book value multiple. It merely results in very high rates of compounding over time, which is just dandy anyhow. There are no investment funds compounding at a high rate that command a high multiple to their underlying portfolio investments. FFH by definition should always trade below intrinsic value, otherwise it would be overvalued. That's the nature of gaining much of your intrinsic value by making shrewed equity investments. The place where they do command some kind of BV multiple would come from evaluating their insurance operations and their wholly owned non-insurance subs. Figure out some sort of value of what the float+floatgrowth+underwriting results brings to the table, and then add that to the BV to get some sort of BV multiple. But the lumpy capital gains... I don't see them worth anything more than portfolio mark-to-market value. ERICOPOLY, I am well aware of the fact that almost nobody wants to hear about discounted valuations on this board… And I agree that they are not very useful. But let’s just make a simple exercise, and calculate the discounted value of equity (VOE) of FFH 20 years from now. To do it, I will use Professor Penman’s formula from his book “Accounting for Value”, page 68, Columbia Business School Publishing: Present value of equity = B0 + [(ROE1 – r) * B0] / (1 + r) + [(ROE2 – r) * B1] / (1 + r)2 +[(ROE3 – r) * B2] / (1 + r)3 + … + [(ROE20 – r) * B19] / (1 + r)20. Assumptions: B0 = book value today = $360, ROE1 = return on equity in year 1 ROE2 = return on equity in year 2 … ROE20 = return on equity in year 20 r = interest rate Let’s say our required minimum return is 9%, so r = 9%. Let’s assume that ROE in year 1 and 2 will be equal to their stated goal of 15%, and then, from year 3 to year 20, it falls to 10% (just above the minimum required return). Under these assumptions we get to a present value of equity: VOE = $570.24, or 1.584 x B0. If we assume that a ROE = 15% will be sustained for the next 20 years, we get to a present value of equity: VOE = $1,112.39, or 3.09 x B0. If, instead of using our required minimum return, we choose to use FFH’s cost of capital as interest rate, so that r = 2,8% (until year end 2011 the weighted average cost of float for FFH since inception has been 2,8%), future ROEs just have to average 6,5% for the next 20 years, to get to a present value of equity that is 2 x B0. My intention here is not to put a precise number on VOE, but simply to argue that the market always has a very hard time valuing properly a machine that can compound capital at high rates of return for a very long time. That’s why I think that, even if FFH might not look “statistically” very cheap, right now it is, like Sir John Templeton was used to saying, a “true bargain”. Something that’s trading below book value is worth more dead than alive… Now, please read how Mr. Watsa answered to Mr. Shezad, when he asked if FFH shareholders had to expect other 7 lean years (Q3 2012 results conference call): “Yes, that was -- Shezad, that's a good question. And so the first thing, just to say you is we've always focused on the long-term and when we went through our 7 lean years, Shezad, we were turning around our company. We were turning around Crum & Forster and the -- take reinsurance and all of that, and that took sometime to turn it around. Today, our companies are in excellent position, they're underwriting-focused, they are well reserved, they've cut back in the soft markets and they are well- positioned to expand significantly at the right time. And then as we are expanding today, you're seeing that in Zenith, and you're seeing it in Crum & Forster, you're seeing it on Odyssey. And the Canadian market's always lag -- have lagged in the past and you'll see it in time in Canada. So underwriting operations are very well-positioned, and our investment philosophy and position -- they're always long term. So when we had credit default swaps in the past, it took a few years for it to work out and as you know, we made a lot of money. And so right now, it's very important not to reach for yield because if you do reach for yield, if you put money into the stock market at these prices, you could suffer permanent losses. We'll take temporary losses but we don't like taking permanent losses. So I don't think we'll be at a position where our results will be poor for a long period of time but you're right for the last year and a half, it hasn't been good. But our results for year ending 2011, for the 5 years, is among the best in the business and of course, for the 26 years ending 2011, it's better than anyone else in our industry. So we're focused on the long-term and we continue, we've always been focused on the long-term, and continue to be focused on doing well for our shareholders always.” It really doesn’t sound to me as something worth more dead than alive! :) giofranchi And so right now, it's very important not to reach for yield because if you do reach for yield, if you put money into the stock market at these prices, you could suffer permanent losses. Sorry, it might sounds like a stupid question for some of you that follow Prem and Fairfax more than I am, but how does Prem does see the market expensive? I guess it is not base on PE ratio, has PE market is not that high. Is he expect earnings to go down?

I guess the selling pressure will be over now that this block is sold.

Bought some cheaper than what Brian Bradstreet paid for his. Xmas gift.